The week of 19th-23rd August 2024- RBNZ jumps the gun on interest rate policy!

Last week, the Reserve Bank of New Zealand shocked markets by cutting interest rates by a quarter of one percent, despite a most recent Q2 assessment of annual inflation of 3.3% which is outside of the RBNZ’s preferred range of 1-3%. Their Monetary Policy Statement makes interesting reading https://www.rbnz.govt.nz/-/media/project/sites/rbnz/files/publications/monetary-policy-statements/2024/aug-140824jvb/mps_report_aug2024.pdf There is a lot of conjecture about the path (lower) of inflation and interest rates and the RBNZ is targeting an Official Cash of 3% in 2026!?

Other major data from last week included US inflation eking lower and a huge Japanese Q2 GDP print of 3.1% annualized.?

Monday morning and the Japanese Nikkei dropped 2% and Yen crosses are lower. Perhaps a currency move triggering an equity move? Higher GDP, potential for higher interest rates, a small carry unwind; sell equities, buy yen, a self-re-enforcing loop??

To this week, and data wise things kick off on Tuesday. First up, Reserve Bank of Australia minutes. If World Central Banks are ignoring their stated policy and cutting interest rates despite persistent inflation, then the RBA will likely follow suit. The minutes should give us clues. There follows a Swedish Riksbank interest rate decision (expectations are for unchanged at 3.75%), Euro Area Core Inflation figures (exp 2.9% y.o.y for July) and Canadian Inflation numbers for July (last time out Headline was 2.7% and Core 1.9% y.o.y).?

Wednesday’s main event is the FOMC minutes in the evening, before Fed Chair Powell and team head off to Jackson Hole.?

On Thursday, German HCOB Manufacturing PMI for August is released with hopes of a slightly more positive reading of 43.5 vs 43.2. ECB Monetary Policy Minutes are released at 12.30 UK time.?

Early Friday morning, Japanese inflation metrics could unleash a flurry of excitement (and market volatility). A headline print of above 2.8% and Core above 2.7% may trigger more yen buying and unease in Japanese equity markets. A stable number may keep markets steady. Fed Chair Powell speaks in the afternoon.?

The Japanese economy is certainly stimulating some movement in equity and FX markets. And creating opportunity for the brave!?

Good Luck and Good trading!

Ben Robson?

Ben Robson is Head of Institutional E-FX at Swiss Finance Corporation. He is also the Amazon Best Selling Author of Currency Kings – How Billion traders Made their Fortune Trading Forex. McGraw Hill